Bankruptcy Basics–Chapter 13, What Does That Mean?

by Karen Oakes, Esq.

March 2, 2007

A Chapter 13 bankruptcy is a bankruptcy case filed under Chapter 13 of the U.S. Bankruptcy Code. The Bankruptcy Code is part of Title 11 of the United States Code. Chapter 7 is titled “Liquidation”. Some other sections of Title 11 apply to Chapter 13 Debtors even though the rules are in different chapters. For example: Chapter 1 defines who can be a debtor. Chapter 3 deals with how the cases (under any chapter) are handled by the courts, trustees, and others. Chapter 5 talks about creditors, debtors and the estate of the debtor. The whole law has to be read to understand what applies and what doesn’t apply. An attorney can help guide you through the maze known as 11 USC and help you find the relief that is sometimes hidden in the Code. A chapter 13 bankruptcy is available only to a real life person, no corporations or limited liability companies allowed. (Those would file either Chapter 7 or Chapter 11 bankruptcies). A Chapter 13 bankruptcy is sometimes referred to as “reorganization”. The US Bankruptcy Code still imposes a “stay” so that creditors must not try to collect debts.

Using a formula of income minus reasonable and necessary living expenses, a Chapter 13 debtor proposes to pay whatever money is left after deducting those expenses to creditors. The proposal is called a “plan”. A “Plan” can last from 36 months to 60 months, depending on a number of things. Usually, the “Plan” proposes to pay cars and other kinds of secured personal property debt, priority debt (such as taxes, family support, or criminal fines/restitution) during the time that the plan is in place. If there is extra money after paying the secured and priority debt, then the terms of the “Plan” determines whether any unsecured debt gets paid. Unsecured debt is credit cards, medical bills, personal loans, etc. At the end of the time period that the “Plan” provides for, the rest of the debt is wiped out and the debtor can walk away with a fresh start. Sometimes, terms of a contract for secured debt can be re-written in a Chapter 13; other times, the debtor is stuck with the contract or giving up the vehicle. It all depends on a lot of different things. A bankruptcy attorney can discuss the various reasons why a Chapter 13 bankruptcy might be right or wrong for your particular situation.

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I'm a consumer protection lawyer in Oregon, working with people in Klamath; Lake; Jackson; Josephine; Curry; and Deschutes County. I speak regularly on bankruptcy and consumer protection issues nationwide.

Last modified: June 15, 2011